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Florida Homeowners Need Break From Assignment-of-Benefits Lawsuits

Florida consumers are used to paying higher insurance premiums in the wake of devastating hurricanes. But an entirely preventable, human-driven phenomenon is now driving rates even higher: Assignment-of-benefits (AOB) claims, in which home-improvement contractors and other vendors submit inflated bills to insurers with the help of fee-motivated lawyers.

Consumers are typically innocent pawns in this game. Soon after a big storm or flood, vendors approach them with a promise to fix the damage now, in exchange for signing over any insurance benefits they may receive later.

What few consumers see buried in the contracts they unwittingly sign is that they are also agreeing to sue their insurance company if it balks at paying the often-inflated bills the vendor submits. But even that isn’t the most expensive part: Under a Florida statute originally intended to level the playing field between individual consumers and insurance companies, “their” attorney — working for the vendor, not the consumer — can collect hundreds of dollars an hour in fees if a court awards as much as a dollar above the insurance company’s initial offer to settle the case.

This “one-way” fee statute gives vendors and their lawyers a strong incentive to perform substandard work and then submit inflated and fraudulent claims, confident the insurer will pay them rather than engage in drawn-out litigation where the legal fees eventually will dwarf the amount of the original claim.

The damage from AOB litigation is clear. In 2000, there were roughly 460 AOB lawsuits. By 2016, there were a staggering 28,000 claims, according to the Florida Office of Insurance Regulation. While the number of claims is alarming enough on its own, AOB claims tend to be particularly expensive. One study of more than 80,000 Florida insurance claims showed the average AOB claim was $17,000 — 50 percent more than non-AOB claims.

Defying the laws of nature and probability, these cases tend to be concentrated in a few specific parts of the state including Miami and Tampa. These are, not surprisingly, where lawyers who specialize in AOB litigation advertise and concentrate their activities. Just 11 attorneys accounted for a quarter of all AOB lawsuits from 2013 to 2016. Without AOB reform, Florida regulators predict property insurance rates in Miami-Dade County will rise more than 50 percent by 2022.

And it’s not just home repairs. The AOB scam has proliferated with cracked windshields. Glass repair shops have begun actively seeking out AOB arrangements, sometimes even throwing in $100 gift cards to sweeten the deal. Unfortunately, the handful of vendors who account for most claims tend to charge 100 percent more than nationally-known vendors — even before legal fees.

Pro-lawyer judges helped create the AOB mess, but the Florida Legislature has the power to fix it. Reforms are needed now to eliminate the incentives for crooked vendors to collude with plaintiff lawyers and raid the one-way attorney fee cookie jar. And, in fact, sensible reform bills have been considered in the Florida Legislature that would limit the fees attorneys can charge insurance companies when they are working for an outside vendor, not the policyholder. But pro-trial lawyer legislators have killed these bills again and again. In 2017, a Senate committee refused to even hear a bill.

It’s a shame a few influential legislators can block AOB reform in Florida, especially given the rising costs, fraud, and excessive attorney fees. There was a time not long ago when Florida was a beacon of lawsuit reform, reforms that were meant to unclog the courts, help the truly injured find justice, and prevent a handful of lawyers from gaming the system. It’s long past time for the Legislature to take up that mantle again.

Harold Kim is executive vice president of the U.S. Chamber Institute for Legal Reform. Learn more at www.instituteforlegalreform.com.